Tencent and NetEase, one of the world’s largest gaming companies, fell more than 10% after publication in the state-run Chinese media. The state Chinese media outlet Economic Information Daily reported on children’s addiction to online games and compared them to drugs. Investors saw this as a sign of imminent regulatory restrictions on the gaming market, which led to a collapse in the shares of companies in this niche.
The authors of the Chinese article called video games «spiritual opium» and compared them to digital drugs. In their opinion, the authorities should additionally regulate the game market in order to avoid further negative impact on children and not to allow the «destruction of a generation». Developers should limit the time children can play games. The article was removed shortly after publication.
Investors at Tencent saw the publication as a signal for possible new regulatory restrictions in the gaming industry. After the article was published, Tencent announced its own new restrictions — the company plans to ban children under 12 from making in-game purchases and reduce the limit on games for minors to one hour on weekdays (it was an hour and a half) and to two hours on weekends and holidays (it was three hours). Fortunately, you may follow all the ups and downs to make profitable investments with the JKR international company. Just be sure you are really interested in it.
Why do you need to know this
The Chinese video game market is the largest in the world The PRC accounts for 24% of the revenue of the global video game market, while the number of players in the country at the end of 2020 amounted to 665 million. Analytical companies predicted that by 2022 the number of gamers in China will exceed 1 billion people. The Chinese market is one of the priorities for game publishers, but in fact it is not easy to get into it: in order to obtain a license from the regulator, a game must comply with Chinese values.
The losses were enormous:
- On the Hong Kong Stock Exchange, the value of Tencent shares declined by more than 10% during the day, but later corrected to 6%.
- The value of shares of NetEase (game developer Fantasy Westward Journey, Knives Out and others) declined even more — by more than 15%. By the closing of the site, the decline fell to 7.8%.
- Against the background of the Chinese collapse, the value of shares of foreign game developers, such as Activision Blizzard (by 3%), Ubisoft (by 3.9%), and Embracer Group (by 4%), also decreased.
Due to the actions of the Chinese authorities, the shares of Chinese companies have been falling for a long time. Tencent lost 23.4% of its share value, its capitalization fell by $ 170 billion, which was the worst result in the world. Investors will continue to overestimate the risks of investing in shares of gaming companies.
Possible new restrictions will affect not only the Chinese video game market, but also the global market — the world’s largest publishers such as Activision Blizzard and Electronic Arts do business in China through Tencent and NetEase. Therefore, if new restrictions appear, this will affect the revenue of foreign players.
Despite the fact that Tencent and NetEase are now trading below their historical averages, the potential reward / risk ratio of these stocks is worse than that of other players in the market. In addition, Tencent’s social media business and NetEase’s online education business is also under pressure from the Chinese authorities, which does not make these shares more attractive.